1 Answer

APR or Annual Percentage Rate or Effective APR is a means for the lender to communicate to the borrower as accurately as possible as to what the borrow is actually paying. 

In the olden days, predatorial lenders would quote borrowers a certain percentage charged but  would omit certain information.  For example, the lender would not include the fee charged, hence, the borrower might have felt he was being charged a lower amount of interest.  In Truth in Lending, the lenders are expected to let the borrower know the total amount being charged (interests plus fees, etc.). 

Lenders may not show the interests being charged as monthly; they must be annualized to lessen the chance of misunderstanding.  Instead of stating 1% per month, the lender must show as 12% per year (annualized).